While you might expect the European Commission to focus on weightier matters, recently was a reminder that the millstone of bureaucracy grinds very fine. The Commission has referred Ireland to the ECJ over its application of a 4.8% reduced VAT rate for supplies of horses and greyhounds. The Commission, arguing that this reduced rate is not in line with the provisions of the VAT Directive, sent a reasoned opinion to Ireland in June 2010. It is now alleged we failed to comply, culminating in the Commission's decision to take Ireland to the Court.

Annex III of the VAT Directive sets out a list of goods to which Member States may apply a reduced VAT rate. As per the EU, this list must be strictly interpreted and applied, in order to ensure fair competition.

One exception is that VAT exemptions or reduced rates which were applied by Member States on 1 January 1991 can continue to be applied, even if they are not now eligible under Annex III. This is on the condition that they have been adopted for clearly defined social reasons and to the benefit of the final consumer.

In view of this exception, Ireland continued to apply a reduced VAT rate of 4.8% for the supply and hire of live horses, for the supply of greyhounds and for the sale of stud services. The Commission considers that there is no clearly defined social reason for allowing such a reduced rate, nor does the final consumer seem to be benefiting from the measure.

For full details see http://europa.eu/rapid/pressReleasesAction.do?reference=IP/10/1576&format=HTML&aged=0&language=en&guiLanguage=en